Google Wallet still lags behind Paypal in terms of brand awareness and use, but smartphone transactions will become the new normal with the younger generation.

This is a post by Quentin Fotrrell from partner site Marketwatch.

MSN Money Partner In an effort to boost the popularity of its mobile payment system, Google this week announced that it is integrating Google Wallet with Gmail. Customers who’ve linked Google Wallet to their bank account or maintain a balance with Google Wallet can simply click the dollar icon on their Gmail to make a payment.

It’s not the first time Google Wallet introduced new features. Last year, it launched a pilot Google AdWords business credit card for small businesses in the U.K. and flirted with the idea of a Google Wallet card for consumers too.

But there are signs that there is untapped demand for mobile payments. Just one-fifth of young Americans ages 18 to 30 always carry cash, according to a new survey by CouponCodes4U, a discount code website. Nearly half said cash would not be used in the future.

“It’s a generational trend,” says Brent Shelton, a spokesman for deal site FatWallet.com. And some 72% of Gmail users are under the age of 34, according to a survey by Hunch.com, a personalized recommendation site.
“The younger generations are adopting this technology in droves,” he said. PayPal and Google Wallet, for example, connect to a bank account or a debit or credit card through a person’s smartphone.

“It’s early days for mobile payments,” says technology analyst Jeff Kagan. “I have children in their early 20s who rarely carry as much as $5 in their wallet.” That’s just enough for tips. “Today, we leave the house with a wallet, car keys and smartphone,” he says. “There will come a time when it will only be our smartphone.”

Google still faces hefty competition. PayPal has an Android and an iPhone app and, on Tuesday, said it would waive fees for the rest of the year for businesses that sign up for its service. Verizon Wireless, one of the country’s major cellphone operators, stopped supporting Google Wallet in 2011. Instead, it’s now part of the rival Isis mobile payment system it launched with AT&T and T-Mobile. Square Wallet, a mobile app for Android and iOS launched by Twitter co-founder Jack Dorsey, last year signed a deal to access some 7,000 Starbucks stores nationwide.

Thus far, PayPal appears to lead. Some 72% of consumers are aware of PayPal, and 48% say they’ve used it, according to a recent survey from ComScore, while only 41% say they’ve heard of Google Wallet, and 8% say they’ve used it.

Since its release in September 2011, Google Wallet has had a bumpy ride. Thousands of merchants are still not set up for mobile payments, making it more difficult for smartphone evangelists to cut up their plastic. What’s more, some consumers are still concerned about security issues of making payments via mobile phone. One U.K. survey found that 44% of people were reluctant to adopt mobile wallets due to fears of phone hacking; only 17% of those surveyed say they would use mobile wallets. (Google did not return requests for comment.)